The Problem in Europe Right Now Is a Lack of Aggregate Demand: Conversation with Ronald Janssen

Ronald Janssen is an Economic Advisor to the European Trade Union Confederation and participated in yesterday’s panel on the Economic Crisis, which caused such interest on social media. We sat down for a chat about what the EU is doing wrong in its economic policy and what it needs to do to start getting things right.

The problem in Europe right now, according to Ronald, is what Keynes would call a lack of aggregate demand. People have little purchasing power, depressing demand which has a knock on effect on production and therefore causes unemployment. This is a downward spiral that markets can’t break on their own. Yet we have a European Commission and a European Central Bank which is doing little to get this motor of consumer demand running again. Instead they are obsessed with lower debt by cutting public spending, no matter the consequences.

But there is a change of emphasis isn’t there, we asked Ronald. We spoke to David Hall yesterday about his report that we’ve just published, where he said that the intellectual debate against austerity is being won. Ronald admits that parts of the Commission are starting to put out a more nuanced message, but that the real power lies with the ECB and the Germany Government, which is implacable in its pursuit of austerity. Their model doesn’t allow for private money to save social Europe, their sole preoccupations are debt and inflation and then let the market free reign.

The two issues that came up most on social media during the panel were tax and precarious work. Ronald was in no doubt that there is significant room to increase taxes on corporations and capital gains.

The US has a corporate tax rate of something like 40%, which is higher than any European country. And who’s going to say that the US is uncompetitive? The European Commission seems to want to shift the tax base more towards taxes on consumption, but this only serves to further harm demand. We need to call for a more progressive tax system, not only lower VAT but less tax on workers’ wages and higher taxes on high incomes and corporate profits.

Precarious work can be a bit of an amorphous concept, but it is clear that across Europe young workers particularly are stuck in insecure, low-paid jobs, whether that is zero-hour contracts in the UK or bogus self-employment in central Europe. To stop this, the existing EU directives and social clauses firstly need to be enforced on the ground, these are very comprehensive on things like the abuse of agency workers. But in many European countries agency workers are still being paid 50% less than their permanent counterparts.